Message From The Inspector General
Change is coming to TVA… and
much of it is internally driven.
Undoubtedly, the coal ash spill at
the Kingston plant on December
22, 2008, set some of those
changes in motion, but the TVA
Board and TVA management
have reacted with a commitment
to make the changes necessary
to make TVA better. Yes,
Kingston was an environmental
tragedy, but ultimately the TVA
that is emerging is likely to be
better able to serve the needs
of Valley residents. As we have
pointed out in our reports on
Kingston, this was a disaster
that did not need to occur.
That is, however, true of most
failures whether personal or, as
in the case of TVA, institutional.
And as with most failures,
there are new opportunities for
growth and TVA is seizing those
opportunities.
The Office of Inspector General at TVA is
more than a proverbial “watchdog.” In
many ways we chronicle the history of
the institution. Our inspections, audits,
and investigations over the years weave
TVA’s story that is at times inspiring
and at times distressing. Our two
inspections that assessed TVA’s reaction
to the Kingston coal ash spill tell a tale
that is mostly distressing. A noble
institution with a proud heritage forgot
its roots. Its reputation has been sullied
both by the event and its failures in how
it reacted to it.
What is now happening within TVA,
however, is inspiring. Instead of taking
defensive half-steps, TVA management

has given itself to righting the wrong.
What we are seeing is not for “show”
but a true commitment to change. The
culture which in part led to the Kingston
ash spill is being thoroughly dissected
and analyzed by experts brought in with
a charge by TVA management to find
out what needs to be “fixed.” Just as
importantly, TVA is aggressively sifting
through its institutional risks with a
focus that inspires confidence.
This inspiring story is not a story easily
told by TVA. Its damaged image makes
any positive story told by TVA suspect.
Fortunately, the TVA Board and TVA
management appear to be committed
to doing the right thing whether or not
they get credit for it. The fact is that
TVA is on the move… and in the right
direction. We report on some of that
in the “Special Feature” section of this
semiannual report.

While the Kingston coal ash spill
seems to have eclipsed everything else
during this reporting period, the men
and women of the OIG went about the
work of performing other inspections,
audits, and investigations that saved
TVA money and made its operations
better. We note those in this report
and among them, one investigation
that has been singled out for special
recognition. I am particularly pleased
that Senior Special Agent Craig Yates
of our office was given an exceptional
performance award for his role on the
Hickman Mills prosecution team. The
award by the Council of the Inspectors
General on Integrity and Efficiency
(CIGIE) was for a joint effort by law
enforcement including special agents of
the Department of Agriculture’s Office
of Inspector General as well as special
agents of the Internal Revenue Service’s
Criminal Investigation Division. The

work of the team exposed fraud against
both TVA and the Department of
Agriculture in regard to loans made to
two businessmen in Kentucky. Those
men have now been sentenced to
incarceration in a federal penitentiary.
This work typifies the collaborative
effort of the various IG offices around
the United States.
We are grateful for the support that
we have received this reporting period
from both Congress and the TVA Board,
particularly in regard to our Kingston
reports.

Richard W. Moore
Inspector General

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Rebuilding the Foundation.

Executive Summary

Semiannual Report | Rebuilding the Foundation.

Representative Inspections And Audits
The Tennessee Valley Authority
(TVA) continues to deal with the
financial consequences brought
about by the December 2008
Kingston ash spill as it cleans
and restores the community to
its pre-spill state. This report
describes the Office of Inspector
General (OIG) initiatives to
identify and better understand
the root causes of the spill
and its assessment of TVA’s
response to the community’s
needs after the event. Following
is a brief synopsis of the
more significant inspections,
audits, and investigations that
were performed during this
semiannual period.

> Inspections
An initial review by the OIG of TVA’s
response to the Kingston ash spill
found: (1) TVA had not properly
implemented the National Incident
Management System, which hampered
communications and delayed certain
emergency response actions following
the spill; (2) TVA’s quick response to the
media and public inquiry resulted in the
release of inaccurate and inconsistent
information, which resulted in criticism
of TVA and caused reputational harm
to the company; and (3) while TVA
responded effectively to victims
affected, failure to timely communicate
TVA’s claims policy and decisions
increased settlement expectations
for some.
Our second review of the Kingston
ash spill focused on a root cause
study performed by a firm contracted
by TVA and TVA’s ash management
practices. We found: (1) the root

cause analysis was handled by TVA in a
manner that avoided full transparency
and accountability for management
practices in order to preserve TVA’s
litigation strategy; (2) TVA was aware
of “red flags” raised over a long period
that signaled the need for safety
modifications to the ash ponds which,
if addressed, could possibly have
prevented the spill; (3) factors other
than the “slimes” layer identified as the
trigger for the spill may have been of
equal or greater significance;
(4) despite internal knowledge of risks
associated with the ash ponds and
discussions of placing the ponds under
TVA’s Dam Safety Program, thereby
subjecting the ponds to more rigorous
inspections and engineering, TVA’s risk
management program failed to identify
ash management as a risk; and
(5) attitudes and conditions that
emanated from a legacy culture resulted
in ash being relegated to the status of
garbage at a landfill rather than treated
as a potential hazard to the public and
the environment.
TVA’s Maintain and Gain Lakeshore
Management Program was designed
to allow consideration of proposals
to obtain lake access rights at the
landowner’s property by swapping
access rights already available at other
properties the landowner possessed.
The program required transactions
that would result in no net loss, and
preferably a net gain to TVA, of public
shoreline. Our review of the program
found: (1) certain actions by TVA
employees and others created an
appearance of preferential treatment
to some that exposed TVA to public
criticism and reputational harm;
(2) no protocol in the process existed
to assure a transparent and objective
review of applications submitted by
those with possible conflicts of interest;

(3) exceptions were arbitrarily granted
in seven of the ten key steps required in
a maintain and gain transaction;
(4) failure to consistently retain
records for applications rejected that
sufficiently demonstrated the rationale
for the decision impacted the integrity
of the Maintain and Gain Program;
and (5) the program could undermine
TVA Board’s 2006 Land Policy and its
apparent goal of restricting residential
development on TVA shorelines.

> Distributor Audits

During the fiscal year, the OIG launched
a new contract compliance audit program related to contracts between
TVA and its power distributors. These
reviews began in the OIG Inspections
group; however, in January 2009, the
OIG established the Distributor Audits
group to focus solely on these reviews
and related issues. During this semiannual period, the OIG completed four
distributor reviews and found:
(1) customer classification and metering issues; (2) contract compliance
issues; (3) lack of guidance by TVA to
determine if a distributor’s cash reserves are excessive; and (4) opportunities for TVA to improve its oversight of
distributors.

> IT Audits

Our audit of general computing controls
related to a TVA control system found
security weaknesses in logical security,
physical and environmental security,
and general security controls. In addition, we found TVA lacked a process
for evaluating audit findings that would
allow it to identify similar issues in
other systems, resulting in repeated
findings being reported by the OIG.
An evaluation of the effectiveness of
agency-wide controls and processes

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in place to monitor, identify, classify,
and respond to cyber security events
found TVA: (1) lacked a comprehensive
strategy; (2) was not adequately
monitoring its information technology
(IT) assets for cyber security events;
(3) did not always follow its incident
response policies and procedures; and
(4) was not effectively using existing
resources capable of increasing IT
security monitoring levels and coverage.

> Internal Control
Reviews

During the second semiannual period
in fiscal year 2009, the OIG continued
its support of TVA initiatives to comply
with Section 404 of the Sarbanes-Oxley
Act of 2002 (SOX). In this period, the
OIG completed tests of controls for
twenty-seven business processes,
five IT general control domains, and
eleven applications. In addition, the
OIG completed year-end, remediation,
and nonoccurrence testing for four IT
general and four application controls.

> Contract Audits

This semiannual period we completed
ten preaward audits of cost proposals
submitted by prospective contractors
to provide major equipment and
services to TVA. These audits identified
$50.5 million of potential savings
opportunities for TVA to negotiate.
We also completed seven compliance
audits of contracts with expenditures
totaling $392 million and identified
potential overbillings of $6.7 million.

>R
epresentative
Investigations
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During this period, TVA experienced the
Kingston ash spill which had a significant environmental impact. Investigations worked closely with Audits and
Inspections to determine the root causes
of the event and how TVA reported the

results of their internal inquiry. Investigations also played a significant role in
the review of TVA’s maintain and gain
lakeshore management program performed by Inspections. We continued
to focus on major fraud investigations
and continued our participation on Task
Forces with other federal, state, and
local agencies. We conducted numerous administrative cases that resulted in
both savings to TVA and administrative
actions. Following is a brief summary of
the more significant work completed by
Investigations during this period.

In the last semiannual report, we
reported the guilty plea of Heraeus
Corporation to a one-count Information,
charging false statements relating
to Clean Air Act requirements in an
Environmental Crimes Joint Task Force
case brought in the Eastern District of
Tennessee. The company was fined
$350,000 and sentenced to 18 months
probation. During this reporting period,
the plant manager also pled guilty to a
one-count Information, charging him
personally with making false statements
in, and omitting information from,
documentation required under the
Clean Air Act. The plant manager was
sentenced to one year probation and
50 hours of community service.
A (now former) TVA Program Manager
was indicted in Circuit Court in
Tennessee for Forgery and Passing
Forged Instruments based on a
falsified invoice to a TVA contractor for
property damage allegedly sustained
during a paid move. The invoice falsely
represented work done to repair the
damage. The OIG issued a report to TVA
management and after receiving notice
of proposed termination, the employee
resigned.
A workers’ compensation benefits
investigation resulted in projected
savings to TVA of $472,007. The
recipient was a painter who sustained a

Semiannual Report | Rebuilding the Foundation.

back injury in 1984 and who collected
partial compensation payments since
that time. The recipient has since
been vocationally rehabilitated to such
extent that his current reported income
far exceeds his expected income as a
painter. Though the recipient properly
reported his income to the Department
of Labor (DOL), our investigation
prompted a DOL review which
determined he is ineligible for workers’
compensation benefits.

A call to our Empowerline resulted in
an investigation into an allegation that
a TVA-owned tugboat sank in TVA’s
Muscle Shoals harbor. The Empowerline
caller reported that the sunken vessel
discharged 2,500 gallons of diesel fuel
into the harbor, and that the sinking was
due to possible malfeasance on the part
of TVA management. Our investigation
revealed, however, that the tugboat
submerged only partially, the amount
of bilge fuel discharged was 25 gallons,
and despite the measures taken, a
malfunctioning pump was the causal
factor.

www.OIGempowerline.com
1-877-866-7840
EmPowerline™ is sponsored by the Office of the Inspector General
and operates independently of TVA.

At the request of plant management,
we investigated a computer use
practice with security and safety
implications. The practice involved the
use of commonly known passwords
and identification numbers within a
work group that allowed individuals
in the group to set and release holds
during projects. The practice came to
light following a release authorization
not made by the individual setting
the hold. The release could have had

serious worker safety implications
though no event actually occurred.
In addition, plant management was
concerned that statements regarding the
practice differed among employees. Our
investigation led to a report published
both to plant management and the
Nuclear Regulatory Commission (NRC).

We also investigated the inaccurate
reporting of the presence of two
heaters at Browns Ferry Nuclear
Plant (BFN) during freeze protection
program reviews dating back to 2003.
The heaters are part of capital asset
protection not associated with direct
nuclear operation equipment. We issued
a report documenting the history and
likely causal factors to TVA Management
which shared the information with
the NRC.
The OIG investigated the sale of items on
eBay bearing identifiers associated with
the BFN. The investigation revealed
that the seller, L&W Surplus, L.L.C., buys
and sells industrial surplus equipment
and has had a contractual relationship
with TVA since 2007. Our investigation
revealed that the suspicious nature of
the items resulted from the inadequate
inventory and itemization of items
prior to their sale. A report was
published to plant management
delineating the issues.
The OIG investigated and substantiated
an allegation that an administrative
employee changed her husband’s
leave schedule to reflect that he was
working when he was on leave. The
administrative employee retired before
the matter was concluded and her
husband’s schedule was corrected.

Two hangman’s noose matters were
concluded in this reporting period at
the Shawnee Fossil Plant. The first
matter originated in January 2009 when
a supervisor reviewing photographs of
scaffolding built for an outage noticed

The OIG is headquartered in the TVA East Tower in Knoxville, Tennessee,
across from the TVA headquarters in the West Tower. The OIG has a major
satellite office in the Edney Building in Chattanooga, Tennessee, where the
Inspections unit and several investigators are located. There is also a staffed
field office at the Watts Bar Nuclear Plant, Tennessee, to which an auditor and
investigator are assigned. In addition, the Investigations unit has staffed field
offices in Nashville, Tennessee; Huntsville, Alabama; and Mayfield, Kentucky.
As of September 30, 2009, the OIG had a total staff of 103. The Audit and
Inspections units are composed of 63 individuals, the Investigations unit is
composed of 30 individuals, and the Administrative staff is composed of
10 individuals.
The number of personnel located at each staffed office is as follows:
Knoxville–76, Watts Bar Nuclear Plant–2, Chattanooga–16, Nashville–2,
Huntsville–4, and Mayfield, Kentucky–1.

Mission
Promote excellence in TVA’s operations
through the conduct of investigations,
audits, inspections, and advisory services
designed to promote economy, efficiency,
and effectiveness and prevent and detect
fraud, waste, and abuse

Vision

To be a highly effective organization that
promotes positive change by identifying
opportunities for improvements in the
performance and efficiency of TVA’s programs
and operations

• Focus efforts on areas of highest impact and risk
• Ensure processes are efficient and effective
• Stay abreast of emerging issues and industry trends
• Stay abreast of stakeholder concerns
• Produce work that is timely, relevant, and
of high quality

>O
FFICE RESPONSIBILITIES
AND AUTHORITY
Created by the TVA Board of Directors
in 1985, the TVA OIG became statutory
under the Inspector General Act
Amendments of 1988 (IG Act). The
authority to appoint the TVA Inspector
General (IG) was transferred to the
President in November 2000 by
Public Law No. 106-422.

• Promote economy and efficiency
while preventing and detecting fraud,
waste, and abuse.
• Conduct and supervise audits,
inspections, and investigations relating
to TVA programs and operations.
• Keep the TVA Board and Congress fully
and currently informed concerning
fraud and other serious problems,
abuses, and deficiencies relating to
TVA programs and operations.
• Recommend corrective actions
concerning problems, abuses, and
deficiencies, and report on the progress
made in implementing such actions.
• Assure work performed by nonfederal
auditors complies with Government
Auditing Standards.
• Issue semiannual reports to TVA Board
and the Congress.

Kay T. Myers
Manager, Human
Resources

• Conduct any audit, inspection, or
investigation the IG deems necessary
or desirable.
• Access all TVA records or other
material.
• Issue subpoenas and administer oaths.
• Receive complaints and grant
confidentiality.
• Have direct and prompt access to
the TVA Board.
• Hire employees and contract for
services as necessary.

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Phyllis R. Bryan
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Director, IT Audits

Richard W. Moore

>

Inspector General

Ben R. Wagner

Stefanie D. Hoglund

Deputy Inspector
General

>

Publlic Affairs Officer

John E. (Jack)
Brennan

Robert E. Martin
Assistant Inspector
General, Audits and
Inspections

>

>

Assistant Inspector
General, Investigations

Jill M. Matthews

Gregory C. Jaynes

Deputy Assistant
Inspector General,
Audits and Support

Deputy Assistant
Inspector General,
Inspections

David P. Wheeler
Director, Contract
Audits

Lisa H. Hammer
Director,
Financial and
Operational Audits

Nancy J. Holloway
Special Agent
In Charge

Paul B. Houston
Special Agent
In Charge

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Louise B. Beck

John H. Barrow III

Audit Quality
Manager

Project Manager
Emerging Issues

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> ADMINISTRATION
The administrative section works
closely with the IG, Deputy IG, and Assistant IGs to address the day-to-day
operations of the OIG and to develop
policies and procedures. Responsibilities include operations for personnel
administration, budget and financial
management, purchasing and contract
services, facilities, conferences, and
government relations.

>A
UDITS AND INSPECTIONS
The Audits and Inspections group performs a wide variety of engagements
designed to promote positive change
and provide assurance to TVA stakeholders. Based upon the results of the
engagements, the Audits and Inspections group makes recommendations to
enhance the effectiveness and efficiency
of TVA’s programs and operations. The
group uses an impact- and risk-based
approach to develop an annual work
plan. The group’s plan considers TVA’s
strategic plans, major management
challenges, enterprise risk management
process and results, and other input
from TVA management. The planning
model also evaluates each potential
engagement from the standpoint of materiality (i.e., costs or value of assets),

potential impact, sensitivity (including
public and/or congressional interest),
and likelihood it will result in recommendations for cost savings or process
improvements. The result of the OIG
audit and inspections planning process
is a focus on those issues of highest
impact and risk of fraud, waste, abuse,
or in regard to IT, malicious, or other
intrusion.

The Audits group, based in Knoxville,
conducts and/or supervises comprehensive financial and performance
audits of TVA programs and operations.
It consists of four departments—Contract Audits, Distributor Audits, Financial/Operational Audits, and IT Audits.

• Contract Audits has lead responsibility for contract compliance and
preaward audits. In addition, this
group performs reviews of TVA
contracting processes and provides
claims assistance and litigation
support.

• Distributor Audits has lead responsibility for contract compliance
reviews of TVA’s distributors. This
group assesses compliance with the
terms of the power contracts between TVA and its distributors.

• Financial/Operational Audits has
lead responsibility for: (1) oversight
of TVA’s financial statement audit
and related services performed by
TVA’s external auditor; (2) reviews
of TVA’s internal controls related to
financial reporting, operational efficiency, and compliance with laws
and regulations; and (3) operational
reviews to assess the results and
economy and efficiency of TVA
programs.

• IT Audits has lead responsibility
for audits relating to the security of
TVA’s IT infrastructure, application
controls, and general controls associated with TVA systems. This group
also performs operational reviews
of the effectiveness of IT-related
functions. In addition to its audit
mission, IT Audits is responsible for
developing and supporting an independent OIG computer network.

The Inspections group, based in Chattanooga, Tennessee, seeks to ensure
that program objectives and operational
functions are achieved effectively and
efficiently. It performs both comprehensive reviews and more limited scope
policy and program reviews. In accordance with the Quality Standards for

Inspections, the objectives of the Inspections group include providing a source of factual and analytical information, monitoring
compliance, measuring performance, assessing the efficiency and
effectiveness of operations, and conducting inquiries into allegations of fraud, waste, abuse, and mismanagement.
Audit and inspection findings vary depending on the objectives
of the project. Issues can be generalized into specific categories
depending on the type of engagement performed. The graphic
on page 14 shows some representative examples of audit and
inspection issues commonly reported.

> INVESTIGATIONS

The Investigations group performs investigative activity related
to fraud, waste, and abuse in TVA programs and operations. It
conducts its work in accordance with the Quality Standards for
Investigations. The investigators maintain liaison with federal
and state prosecutors and file a report with the Department of
Justice whenever the OIG has reason to believe there has been
a violation of federal criminal law. Our investigators work with
other investigative agencies and organizations on special projects
and assignments, including interagency law enforcement task
forces on terrorism, the environment, and health care. Our investigative workload includes the following major categories:
Contract Fraud – Defrauding TVA through its procurement of
goods and services.

Theft of Government Property and Services – Theft of TVA
property and “schemes to defraud . . . designed to deprive individuals, the people, or the government of intangible rights, such
as the right to have public officials perform their duties honestly.”
Environmental Crime – Any act which violates an environmental protection statute.

ACTUAL FRAUD SCHEMES
INVESTIGATED BY THE OIG
• Falsification of information in Economic
Development grant application and bid
proposals
• Un
allowable or unauthorized purchases
(e.g., use of TVA funds for personal
luxury items)
• Misallocation of costs among projects
• Mi scharging for expenses not incurred
or work not performed (i.e., phantom
charges)
• Misrepresentation of project status
and progress in order to continue
receiving funds
• Falsification of test results or other data
• Disposal of hazardous waste in violation
of Federal regulations
• Influencing an award to a family
member or friend

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S p e cia l
F e at u r e :

Recovery Following
The Kingston Ash Spillâ&#x20AC;&#x201D;
Restoring An Agency
And A Community
In Crisis

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As discussed in the previous semiannual report to Congress,
TVA has been portrayed by many as an agency in crisis.
Because of nationally-publicized challenges such as decreasing
revenues, multiple lawsuits against TVA and an unprecedented
environmental spill publicly compared to the Exxon Valdez, TVA’s
stability and long-term health has been called into question.
“TVA is undeniably being challenged on a number of fronts,”
says TVA Inspector General Richard Moore.
The Kingston Fossil Plant coal ash spill
of December 22, 2008, in which 5.4 million cubic yards of ash poured onto adjacent land and into the Emory River, is
one of the largest environmental disasters in American history. The TVA OIG
released two reports—one in June 2009
critiquing TVA’s response to the ash
spill and another in July 2009 evaluating TVA’s root cause analysis of the spill.

The second report assessing TVA’s root
cause analysis also evaluated TVA management’s role regarding ash storage
and found that managing ash storage
was a low priority. The TVA OIG hired
Marshall Miller & Associates (Marshall
Miller), a nationally-recognized engineering consulting firm, to assist with
the technical aspects of the review. TVA
hired AECOM Technology Corporation
(AECOM) to complete the initial root
cause analysis. The objectives of the
TVA OIG review were to (1) provide an
independent peer review of AECOM’s
root cause analysis and (2) review TVA’s
ash management for weaknesses.
In summary, the TVA OIG peer review
found that:

• TVA management handled the root
cause analysis in a manner that avoided transparency and accountability in
favor of preserving a litigation strategy. TVA elected not to publicly disclose
management practices that may have
contributed to the Kingston spill.
• TVA could have possibly prevented
the Kingston spill if it had taken recommended corrective actions. TVA

was aware of “red flags” that were
raised over a long period of time
signaling the need for safety modifications to TVA ash ponds.

• AECOM overemphasized the “slimes”
layer as a trigger for the Kingston spill.
Marshall Miller concluded that factors
other than the “slimes” layer may have
been of equal or greater significance.
• Despite internal knowledge of risks
associated with ash ponds, TVA’s
formal Enterprise Risk Management
(ERM) process, which began in 1999,
had not identified ash management
as a risk. While over the years there
was internal discussion about placing
the ash ponds under TVA’s Dam Safety
Program, which would have required
more rigorous inspections and engineering of the ash ponds, TVA chose
not to do this.

• Attitudes and conditions at TVA’s fossil
fuel plants that emanate from a legacy
culture impacted the way TVA handled
coal ash. Ash was relegated to the
status of garbage at a landfill rather
than treating it as a potential hazard
to the public and environment.
TVA management generally agreed with
the findings of the report and has subsequently hired McKinsey & Company, a
consulting firm, to address the cultural
issues brought to light as a result of
the ash spill. TVA also hired Stantec,
an engineering company, to rigorously
inspect, evaluate, and make recommendations on ash storage facilities at all its
fossil plants.

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Kingston Fossil Plant

Additionally, on January 9, 2009, TVA
retained the firm of McKenna Long
& Aldridge, LLP, a national expert in
independent investigations, to conduct
an independent factual investigation of
the Kingston spill and its implications
relating to systems, controls and culture.
On July 21, 2009, the Board approved
a resolution proposed by Director Tom
Gilliland, chairman of the Audit, Ethics
and Governance Committee, to address
the failures identified in the McKenna
report. At the same board meeting,
the Board directed TVA management
to develop an extensive remediation
plan in response to the independent
investigation of the Kingston ash spill,
various reports by the TVA Inspector
General and recommendations by TVA
management.
“The TVA Board and management have
been very receptive,” IG Moore said
of the TVA OIG report findings. “They
understand what the issues are and
TVA is doing what we think needs to
be done to address the findings.”
TVA recently completed removing
one-third of the coal ash dumped into
the Emory River from its Kingston
Fossil Plant.

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TVA Chief Executive Officer and
President (CEO) Tom Kilgore was
quoted as saying in a September 23
Chattanooga Times Free Press article
that work crews had excavated
1 million cubic yards of ash that
spilled last December into the river
beside the Kingston coal plant. Some
580,000 cubic yards of the ash has
been shipped to a lined landfill in
Perry County, Alabama.

“Since we had the biggest accident with
coal ash in the industry, I want to have
the best cleanup program of any utility,”
Kilgore said. The cleanup, slated to be

completed by next spring, is the first
phase of a multi-billion-dollar program
designed to make TVA a leader in coal
ash disposal.
TVA has spent nearly $230 million
this year to clean up the Kingston ash
spill, according to TVA Environmental
Executive Anda Ray who was also
quoted in the September 23rd article.
TVA anticipates spending $1.2 billion
to clean up the Kingston spill and up
to $2 billion over the next eight years
to convert five other wet ash storage
plants to dry ash storage systems.

TVA executives have stated repeatedly
that they want the area impacted by the
spill to be “better” than it was before
the incident. As part of this initiative,
TVA set aside approximately $40 million
in economic development funds for
locally-identified projects to help Roane
County and its communities.
TVA and the elected leaders of
Roane County and its communities
announced in September that they
are establishing the Roane County
Economic Development Foundation
to administer the funds provided by
TVA. The elected leaders and TVA
representatives are serving as the
foundation’s board and have set criteria
for considering requests for funding
projects. The foundation has already
granted requests to provide $6.7 million
for revitalization of the Harriman
downtown area and to improve the
Kingston wastewater treatment system.
TVA has also been working diligently
to compensate Kingston residents
affected by the ash spill. A recent
editorial to a local newspaper perhaps
says it best that TVA both literally
and metaphorically changed the
waterscape of Kingston long before the
unprecedented ash spill.

Semiannual Report | Rebuilding the Foundation.

The East Tennessee resident, who
authored the editorial, implores
“Kingstonians” to give TVA a chance
to “redress the issues at hand” and to
remedy any economic harm. “There are
few citizens in Roane County who have
not been helped by the huge presence
of the Tennessee Valley Authority at
their doorstep,” she writes. She goes on
to credit the opening of TVA’s Kingston
steam plant with creating jobs for
residents.

“The South was not known for wellpaying jobs in the 1950s,” she writes,
“but TVA changed that for many
families. Kingston became an enclave of
comfortable middle-class families with
good schools enriched by funding that
came with each child of a TVA or federal
employee. Besides the jobs created by
TVA, the recreational benefits have been
tremendous. Before TVA, Kingston was
not situated on a lake suitable for bass
fishing, jet skiing or boating. It was on a
river that flooded at the whim of heavy
rains. Homes did not dot the shoreline,
as they do now, because they would
likely have been washed away…”
Though TVA has received an onslaught
of public scrutiny and criticism since
the Kingston ash spill, there are a
number of Kingston residents who
have expressed gratitude to TVA for
their work in trying to restore their
lives. TVA’s Environmental Executive
Anda Ray has repeatedly stated that the
ultimate goal is not just to restore the
area affected by the spill, but to make it
better. She has encouraged residents to
envision what that would entail and to
provide their insight to TVA employees
working on the restoration.
As of this writing, TVA has purchased
138 properties. They’ve settled 95 insurance claims and have provided help
to more than 750 residents through

the TVA Outreach Center established
in downtown Kingston. TVA also contracted with a mental health provider
to provide residents a professional with
whom to discuss their feelings and how
the ash spill affected them.

After the initial onset of the crisis, TVA
set up a hotline phone number to which
more than 600 residents have called
since December 22, placed 23 families in
hotel rooms, and provided cell phones
to residents whose phone service was
temporarily disconnected. TVA also
provided VISA debit and restaurant
cards for purchase of meals and other
sundries to those displaced from their
homes and gift cards for Christmas to
one family.
TVA was also responsive in attempting
to provide protection from potential
environmental hazards caused by the
spill by delivering bottled water and
several hundred air filters to residents
in the first two weeks.

“We wanted to ensure residents were
safe first and foremost,” Ray said,
“then we focused on restoring the
infrastructure to the area by supporting
local utilities with restoration of electric,
gas and water lines and by repairing and
repaving two primary roads in the area.”

Letters to TVA from residents affected by
the spill indicate the gratitude some have
toward TVA for their quick response in
helping them restore their lives.

“We are two (Swan Pond area) residents
who want to let you know how much
we appreciate everything you have done
during these past two weeks,” one letter
read. “Christmas night we welcomed Mr.
Ron Hall into our home. The numerous
additional staff who have telephoned
and knocked on our front door to just

Kingston Fossil Plant
• Construction begins in 1951.

• Commenced operations in 1954 and
was the world’s largest coal-burning
power plant at the time.

say hello, to inquire if we had any
questions, needs and/or concerns,
were graciously welcomed too. We also
must recognize the 24/7 efforts of the
water and road crews, and the amazing
progress that has been made in such a
short time.

“Our family has owned this home for
over 40 years, and neither of us want
or plan to leave. We have great hopes
that not only will the area be returned
to ‘like it was’ status, but that status will
become ‘better than it was.’”

TVA’s efforts continue with an
operational outreach center and mental
health services, a well-water testing
process for residents, air testing, a tollfree number regarding insurance claims,
interim housing including furnishings
and amenities and a medical outreach
effort driven by Vanderbilt University
and its medical center and Oak Ridge
Associated Universities to assess the
health of Roane County residents who
believe they have been affected by the
spill, and to educate area physicians
about fly ash and the medical protocols
Vanderbilt physicians will follow.

Besides the impactful efforts that TVA
has made to restore the community and
residents of Kingston, TVA has worked
intensely to bolster its ERM program
designed to identify potential risk areas
and prevent a possible operational
failure, such as the ash spill. In 2008, the
TVA OIG conducted a follow-up review
of TVA’s ERM since its initial 2003
review. While the OIG found that TVA
made significant progress in enterprise
risk identification and assessment,
further recommendations included:

• Continuing to drive the risk
management culture into and
across the organization.

• Assessing both inherent and
residual risks.

• Articulating the company’s risk
tolerance with respect to various risks
that have been identified.
• Enhancing governance by formally
documenting risk policies and
procedures.
• Enhancing board communication
with respect to the ERM program
and results.

The findings from our reviews of the
ERM program and from recent reviews
related to the Kingston Fossil Plant
ash spill solidify our conclusion that
TVA needs to drive ERM further down
into the organization to increase the
future likelihood that known risks will
be identified and addressed. Based on
our reports and the recent Kingston
catastrophic event, TVA has made ERM
staffing and process changes. Specifically, TVA has initiated a bottom-up approach and now conducts business unit
workshops. This process has allowed
TVA to address many more risks that
may not have surfaced using a topdown approach.
Risk assessment efforts, driven by
15 Risk Coordinators, are now
occurring at multiple levels throughout
the organization and these efforts span
multiple enterprise risk categories
such as employee fraud, pandemic,
terrorist attack, and deteriorating
IT infrastructure. Management’s
commitment to ERM has been a
key factor in driving the program’s
success and will be critical to
extracting the program’s strategic
value going forward.

NOTEWORTHY UNDERTAKINGS
>T
HE TVA OIG LAUNCHES
PUBLIC SERVICE
ANNOUNCEMENTS ON
LOCAL TV STATIONS
A series of three thirty-second public
service announcements (PSAs) were
created from the TVA OIG’s latest video
release which addresses the thought,
“If only it were easy to spot fraud.”
The PSAs are expected to run on
local TV stations throughout the
Tennessee Valley.
The four-minute video, from which the
PSAs were created, showcases what it
might look like if it were easy to spot
fraud, but because it’s not, a message
from the Inspector General highlights
what TVA employees and ratepayers
can do if they suspect fraud.

Our office initiated this effort to
encourage TVA employees, contractors,
and the public to report possible
instances of fraud, waste, abuse, and
mismanagement to the office’s hotline,
the Empowerline, which allows users
to report anonymously if they choose.

To view the video, visit www.oig.tva.gov,
and click on the video link.

HOW TO REPORT
Suspected or alleged fraud, waste, or
abuse can be reported to the TVA OIG in

> TVA OIG SENIOR SPECIAL AGENT RECOGNIZED BY CIGIE FOR WORK ON
CASE LEADING TO THE PROSECUTION OF TWO TENNESSEE BUSINESSMEN
The TVA OIG was named as an award
recipient by the 2009 Council of the
Inspectors General on Integrity and
Efficiency (CIGIE) Awards Panel for
its work in a complex loan fraud
that resulted in the conviction of
two Tennessee businessmen, Lloyd
Aaron Smith and Neal Gordon Wall,
for bank fraud, mail fraud, and money
laundering. The awards ceremony took
place on Tuesday, October 20, 2009,
at the Andrew Mellon Auditorium in
Washington, D.C.

TVA OIG Senior Special Agent Craig
Yates received the award on behalf
of the prosecution team. Other team
members included: G. Lynn Bracey,
Senior Special Agent, USDA-OIG; James
R. Lesousky, AUSA Western District of
Kentucky; William K. Miller, Special
Agent, Internal Revenue Service; and
James H. Rafferty, Retired Special Agent,
Internal Revenue Service.
According to the nomination, these
individuals were honored for their
exceptional performance in the
joint investigation and prosecution
of a complex fraud case where the
two Tennessee businessmen were
sentenced and ordered to pay $4.5
million in restitution for bank fraud,
mail fraud, and money laundering. This
investigation was conducted jointly
with the Tennessee Valley Authority’s
Office of Inspector General, the U.S.
Department of Agriculture’s Office
of Inspector General – Investigations
(USDA-OIG), the U.S. Internal Revenue
Service’s Criminal Investigation
Division, and the U.S. Attorney’s Office
for the Western District of Kentucky.

Smith and Wall applied for and received
a $500,000 loan from the TVA’s
Economic Development program, the

proceeds of which were to be used
solely for the purpose of purchasing ten
specific items of equipment for use in
operating Hickman Mills, Inc., a textile
company in Hickman, Kentucky, which
Smith and Wall owned and operated
during that time.

The defendants caused fraudulent
documents to be submitted to TVA
in support of their $500,000 loan
application. One of the documents
indicated that Smith and Wall owned
the ten items of equipment to be
acquired with the loan proceeds
through a purchase transaction in April
2002. Another document showed that
Smith and Wall entered into a contract
in July 2003 to sell the same ten pieces
of equipment to Hickman Mills for
$500,000. The indictment charges that
Smith and Wall, in fact, never owned the
ten items of equipment.

Instead of using the proceeds of the
$500,000 loan from TVA to purchase the
ten items of specified equipment, Smith
and Wall deposited the monies into an
account established with a Tennessee
bank in the name of Dyer Fabrics, Inc.,
another business owned and operated
by the two.
Smith and Wall pled guilty to bank
fraud, mail fraud, and nine counts of
money laundering. On February 11,
2009, both men were sentenced by
the U.S. District Court in Paducah,
Kentucky. Smith received 30 months
incarceration, and Wall received
27 months incarceration. They
were jointly and severally ordered
to pay restitution in the amount of
$420,733.37 directly to TVA and
$4,104,562.51 to the Citizens Bank of
Hickman or USDA, and assessed $1,100.

“The prosecution of this case was
important in maintaining the integrity
of TVA’s Economic Development
program,” TVA OIG Inspector General
Richard Moore said. “The Office of
the Inspector General will continue
to scrutinize these types of loans to
determine if TVA is being defrauded.”

Senior Special Agent Yates and
IG Moore with Award

Hickman Mills TVA Investigative Team

Semiannual Report | Rebuilding the Foundation.

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> SOCIAL NETWORKING TURNED PROFESSIONAL AT THE TVA OIG
Social networking mediums such as
Facebook, MySpace, and Twitter have
appeared to reach a peak in popularity
among students, adults, and even those
beyond retirement age. The efficiency
social networking provides in allowing
people to be instantly connected to
friends and family members has made
the medium attractive to private
businesses and now government
agencies, such as the TVA OIG.

In a teleworking environment where
face-to-face contact is limited, a
professional network is ideal for
information sharing and employee
collaboration. Social networking
is being used professionally by
government agencies such as the
Centers for Disease Control and the
Office of Management and Budget and
now it has been seemingly well received
by our office.

The TVA OIG Professional Network
is based on the same format that
Facebook uses and allows employees
to post information about themselves
to their own profiles that are only
accessible to other TVA OIG employees.
It is a secure way for employees to
communicate with each other and learn
about common interests and specific
areas of expertise that they might
not otherwise have an opportunity to
learn about. Work projects requiring
interoffice collaboration can be done
even more efficiently because of this
information-sharing tool.

The network allows all TVA OIG
employees throughout multiple states
including Kentucky, Alabama, and
Tennessee to learn about each other’s
professional endeavors and to share
knowledge on specific areas of interest
and expertise. It also allows employees
to blog and create group discussions or
forums on relevant topics.

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According to www.usa.gov, “Social
networking sites with government
partners can help achieve a
government’s mission. Internal
social networking sites can establish
connections across traditionally
stovepiped and geographically
dispersed organizations. Employees
could form groups on social networking
sites to overcome stovepipes within
organizations.”

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Semiannual Report | Rebuilding the Foundation.

TVA INSPECTOR
GENERAL TESTIFIES
BEFORE CONGRESS
Richard Moore testified before the
House Subcommittee on Water
Resources and Environment on
June 28, 2009. The testimony was
in regard to the TVA OIGâ&#x20AC;&#x2122;s second
report on the Kingston Fossil Plant
ash spill: Review of the Kingston
Fossil Plant Ash Spill Root Cause
Study and Observations about
Ash Management. A copy of his
testimony can be found on our
Web site at www.oig.tva.gov.

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Semiannual Report | Rebuilding the Foundation.

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Rebuilding the Foundation.

Summary of Representative Inspections

Semiannual Report | Rebuilding the Foundation.

Summary of
Representative
Inspections

Gregory C. Jaynes
Deputy Assistant
Inspector General,
Inspections

During this semiannual period, we
completed 19 inspections covering
a smorgasbord of operational areas,
in addition to the two distributor
reviews completed under Inspections.
Specifically, we completed: (1) two
inspections which addressed aspects
of the Kingston ash spill, including the
root cause, TVA’ management culture,
TVA’s emergency response, TVA’s
media response, and reparations to
victims; (2) an assessment of TVA’s
financial performance and challenges;
(3) a review which resulted in the
termination of the Maintain and Gain
Lakeshore Management Program;
(4) four inspections of TVA coal
suppliers to assess contract compliance
with weighing and sampling provisions;
and (5) eleven campground inspections

to determine if operation was in
accordance with program intent and
operating controls were functioning.
Results of the distributor reviews are
discussed below under Distributor
Audits. This once again shows
Inspections’ ability to impact the
effectiveness and efficiency of
programs across TVA.

>K
ingston Fossil
Plant Ash Slide
Interim Report

The spill of wet coal ash at the Kingston
Fossil Plant is the largest such spill to
occur in our country. More than one billion gallons (i.e., 5.4 million cubic yards)
of coal ash poured onto adjacent land
and into the Emory River. Coal ash is
a byproduct produced when fossil fuel
plants burn coal to generate electricity.
Our report focused on: (1) TVA’s initial
emergency response, including implementation and utilization of the National
Incident Management System (NIMS);
(2) TVA’s responses to the media; and
(3) reparations to the victims and restoration of the affected Roane County community. In summary, we found:
• TVA had not implemented NIMS in
accordance with Homeland Security
Presidential Directive 5 which hampered communications and delayed

certain emergency response actions
following the spill.

• TVA’s actions for responding quickly
to media and public inquiry resulted in
releases of inaccurate and inconsistent
information and subsequent public
criticism which caused reputational
harm to TVA.

• TVA has responded effectively to
victims in the affected area; however,
failure to communicate the claims
policy and decisions in a timely manner
increased settlement expectations for
some.

TVA management agreed with our findings and is taking actions to address the
recommendations. Specifically, management plans to: (1) fully implement
NIMS, ensure required NIMS training
is completed, and evaluate the implementation of best practices as identified
by the Roane County Emergency
Management Director; (2) document
the protocol and verification process
for the release of media statements and
maintain verification that the appropriate processes were followed; and
(3) continue to work with the communities and local residents to improve the
communications related to TVA’s
efforts with property acquisition
and claims process.

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Kingston Fossil Plant Area Pre-Dike Failure

Kingston Fossil Plant Area Post-Dike Failure

Kingston Fossil Plant as of August 2009

Semiannual Report | Rebuilding the Foundation.

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>R
eview of the
Kingston Fossil
Plant Ash Spill Root
Cause Study and
Observations about
Ash Management
On December 22, 2008, a major dike
failure occurred on the north slopes of
the ash pond at the TVA Kingston Fossil
Plant. This failure resulted in the release of approximately 5.4 million cubic
yards (more than 1 billion gallons) of
wet coal ash spilling onto adjacent land
and into the Emory River. TVA’s CEO
directed the TVA Office of the General
Counsel to contract with a firm to do
a root cause analysis of the spill, and
AECOM was commissioned with the
task. The objectives of the OIG’s review
were to: (1) provide an independent
peer review of AECOM’s root cause
analysis and (2) review TVA’s ash management for weaknesses. To assist with
technical aspects of this review, the OIG
hired Marshall Miller to independently
peer review TVA’s root cause analysis
and provide other observations about
ash management practices at TVA. In
summary, we found:
• TVA management handled the root
cause analysis in a manner that avoided transparency and accountability
in favor of preserving a litigation
strategy. TVA elected not to publicly
disclose management practices that
may have contributed to the Kingston
Fossil Plant spill.

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• TVA could have possibly prevented
the Kingston Fossil Plant spill if it had
taken recommended corrective actions. TVA was aware of “red flags”
that were raised over a long period
of time signaling the need for safety
modifications to TVA ash ponds.

• AECOM overemphasized the “slimes”
layer as a trigger for the Kingston
Fossil Plant spill. Marshall Miller
concluded that factors other than the
“slimes” layer may have been of equal
or greater significance.

• Despite internal knowledge of risks
associated with ash ponds, TVA’s
formal ERM program, which began
in 1999, had not identified ash
management as a risk. While over the
years there was internal discussion
about placing the ash ponds under
TVA’s Dam Safety Program, ultimately,
TVA did not place the ash ponds under
its Dam Safety Program. Treating
the ash ponds like dams would have
required more rigorous inspections
and engineering.

• Attitudes and conditions at TVA’s fossil
fuel plants that emanate from a legacy
culture impacted the way TVA handled
coal ash. Ash was relegated to the
status of garbage at a landfill rather
than treating it as a potential hazard
to the public and environment.
In addition, this OIG report was
presented to the TVA Board on July 14,
2009. After the OIG briefed the TVA
Board on its findings, a specially called
TVA Board meeting was held on July 21,
2009. A report prepared by McKenna
Long and Aldridge and commissioned
by the Audit, Governance, and Ethics
Committee of the TVA Board in
February of 2009 was released. TVA
management acknowledged at the
July 21, 2009, meeting many of the
management failures that we identify
in this report. These admissions
reflect the type of transparency
and accountability for TVA that the
OIG has pressed for some time. We
applaud the TVA Board’s leadership
in this matter and TVA management’s
acknowledgement of TVA’s role in the
Kingston Fossil Plant spill.

Semiannual Report | Rebuilding the Foundation.

The OIG recommended TVA’s CEO, in
consultation with the TVA Board:

• Commission a dedicated cadre of
professionals skilled in change
management focused solely on driving
compliance throughout TVA and
measuring positive changes in the
culture that affect ash management
and other TVA programs.
• Assess the culture of the Fossil
Power Group to determine what
changes need to be made, if any,
to ensure the support for sound
policies and procedures related
to ash management.

• Assess the management practices of
TVA for ash management to determine
whether those practices contributed
to the failure of the dike at the
Kingston Fossil Plant.
• Complete the assessments of TVA ash
storage facilities and determine which
ones are at risk of failure. The determination should be, as suggested by
Marshall Miller, based on whether any
of the four conditions contributing to
the failure at the Kingston Fossil Plant
exist sufficiently to pose a significant
risk of failure. The determination
should not be limited to just looking
for the existence of the combination of
all four contributing conditions found
at the Kingston Fossil Plant.
• Develop policies and procedures for
the storing, handling, and maintaining
of ash and ash disposal facilities.
• Continue the efforts to drive the
ERM program further down into the
organization to increase the future
likelihood that known risks will be
identified and addressed.

TVA’s CEO provided comments on a
draft to this report. The CEO generally
agreed with our recommendations
and, in addition to identifying actions

already taken, stated that actions inprocess or planned include:
(1) implementing a cultural—
focusing initiative across the agency,
incorporating lessons learned from the
Kingston Fossil Plant spill; (2) using
the detailed, technical explanation of
what and how the Kingston Fossil Plant
dike failure occurred to ensure that
it never happens again and to safely
close the failed cell; (3) developing and

implementing (a) more detailed and
rigorous policies and procedures for
storing, handling, and maintaining ash
and managing ash disposal facilities,
and (b) a comprehensive program
for future coal combustion product
remediation and conversion; and
(4) implementing ERM improvements
to better achieve the goals of the
program.

Kingston Fossil Plant Cleanup

> Review of TVA’s Financial Performance
This review was the second in a series
of reviews that will benchmark TVA’s
performance in key areas and answer
the question, “How is TVA doing in
regard to financial performance?”
In conducting this review, we:
(1) assessed key performance measures
and their alignment with the key
strategic objectives; (2) evaluated TVA’s
results relative to targets and available
benchmark information; and
(3) identified key management
challenges that could affect how
successful TVA is in achieving its
financial strategic objectives.
In our judgment, TVA’s overall financial
performance for this assessment period
was adequate; however, the agency
faces several significant financial
challenges, some of which have recently
emerged. This conclusion is based on
our analysis of TVA’s financial health in
three areas: (1) maintaining adequate
revenues; (2) making sound capital
investments; and (3) containing costs.
In summary:

• TVA’s ability to set its own rates and
the implementation of a fuel costadjustment clause provides flexibility
to help maintain adequate revenues
to cover costs. Additionally, TVA
operates in a service area that is
largely free from competition and has
a large, diverse customer base.

• TVA has made certain investment
decisions in the past that did not pay
off. TVA is seeking to improve its
capital investment decisions and the
financial performance of its capital
assets. However, TVA’s ability to make
these large investments pertaining to:
(1) new generation and transmission
assets; (2) environmental requirements; and (3) existing assets that
are aging and need regular upgrades
to keep running, will be a challenge,
given TVA’s financing structure and
legislative debt ceiling.

• TVA is attempting to reduce certain
costs to improve its financial position.
TVA fairs poorly when compared to
other electric utilities with respect to
nonfuel operation and maintenance

(O&M) costs. TVA is seeking to
reduce nonfuel O&M costs but has
made limited progress to date. TVA
has also focused on reducing interest
costs as a percentage of revenues
and has made progress in doing so in
recent years.

Recent events have negatively affected
TVA financially including: (1) a wet coal
fly ash spill at the Kingston Fossil Plant;
(2) a downturn in the economy causing
declining power sales; (3) a court
ruling on a lawsuit brought by the state
of North Carolina; and (4) significant
losses on accounts established to
fund pensions and asset retirements.
Our report includes discussions of
the necessity to manage commodity
price, investment price, interest rate,
credit, and capital requirement risks.
In addition, while TVA’s bond rating
is based primarily more on its federal
ties than its financial position, TVA
management has identified maintaining
the AAA bond rating as a risk factor in its
2008 filing with the U.S. Securities and
Exchange Commission on Form 10-K.

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>R
eview of Maintain
and Gain Lakeshore
Management
Program
This review was conducted to
determine whether: (1) TVA gave
anyone preferential treatment in the
review and approval of Maintain and
Gain transactions, and (2) the policies
and procedures related to the design
and execution of the Maintain and Gain
process were adequate. The Maintain
and Gain program was designed to
allow consideration of proposals
to obtain lake access rights at the
landowner’s property by swapping
access rights already available at other
properties the landowner may possess.
The policy, as written, required that
transactions would result in no net
loss, or preferably, a net gain of public
shoreline. We reviewed all Maintain
and Gain transactions that had been
approved since inception of the
program up to the date of our report
and found:

• Certain actions by TVA employees and
by others created the appearance of
preferential treatment and thereby
increased TVA’s risk of reputational
harm.
• TVA did not have a protocol in the
Maintain and Gain process to ensure a
transparent and independent review
of applicants having known conflicts
of interest.

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• The Maintain and Gain program has
been administered in an arbitrary
manner and requires substantial
improvement if it is to be retained
by TVA. We noted that exceptions
were granted in seven of the ten key
steps required in a Maintain and Gain
transaction.
• TVA’s failure to retain records of who
filed applications and why those

applications were rejected damages
the integrity of the Maintain and Gain
program.

• The Maintain and Gain program
may undermine the TVA Board of
Director’s 2006 Land Policy and its
apparent goal of restricting residential
development on TVA shorelines.
We recommended TVA management,
in consultation with the TVA Board,
consider:

• Eliminating the Maintain and Gain
program and only consider changes
to water access rights during the
periodic update of the Shoreline
Management Policy.

• Alternatively, if the Maintain and Gain
program is retained, TVA should:
(a) evaluate the extent it may conflict
with the Land Policy regarding
residential development; (b)
strengthen procedural guidelines
to reduce the inconsistency in
how matters are resolved; and
(c) implement procedures to
ensure adequate documentation is
maintained of rejected and withdrawn
applications.

• Establishing a clearly defined
protocol which creates a procedure
for identifying inherent conflicts of
interest by those applying for any TVA
benefit. We also recommended that
the protocol include the following
elements:

Semiannual Report | Rebuilding the Foundation.

- A definition of inherent conflicts of
interest broad enough to capture
the majority of cases that involve
conflicted parties soliciting something
of value from TVA.

- A training program for TVA employees
to enable them to recognize and report
conflicts.
- A process to refer these cases to the
Ethics and Compliance Officer, the
Designated Agency Ethics Officer and
to the OIG to track, review, and report
on whether or not any preferential
treatment occurred.
- A notice provision to any conflicted
party applying for a TVA benefit
advising them that their request or
application will be the subject of a
formal review and public report.

The CEO generally agreed with our
findings and recommendations. Based
on our review, the TVA Board and
management eliminated the Maintain
and Gain program and a conflict of
interest protocol was developed and
implemented that incorporates the
elements recommended by the OIG.

>T
VA Coal Supplier
Contracts
We conducted four inspections to determine whether selected coal suppliers
were in compliance with weighing and
sampling requirements of each respective contract. We performed tests to
verify that shipment weight documentation maintained at each mine supported
the amounts used to support invoices
to TVA for tonnage shipped. In summary, our reviews found documentation
maintained at each respective mine

for ten randomly selected shipments
agreed with the information provided
to TVA regarding tons shipped. Each
supplier was also found to be in general compliance with the weighing and
sampling requirements in the contract.
However, we did identify a few issues
requiring TVA management action related to bias testing. TVA management
generally agreed with our findings and
recommendations and plans to take
corrective action.

Coal Barge

> Review of TVA Managed Campgrounds
At the request of the Senior Vice
President of Environment and
Research, we initiated reviews of the
11 TVA-managed campgrounds to
determine: (1) if the campgrounds
were being operated in accordance
with the program’s intent and (2) if the
operating controls were functioning
as intended. We found that the
campgrounds were operating within the
program’s intent, which is to provide
public areas for recreation. In addition,
we found the operating controls
were functioning as intended and

campground guidelines were generally
being complied with. However, we did
note:

• Some minor overall program guideline
inconsistencies.
• For the four campgrounds with
a resident manager, the resident
manager contracts did not include
some specific responsibilities
identified in the TVA Resident
Manager Manual.

• The resident manager contract for one
campground differed somewhat with
regard to duties and responsibilities
when compared to the other three
resident manager contracts.
• One resident manager contract had
not been updated to reflect revised
responsibilities.

TVA management generally agreed with
our findings and recommendations and
has taken or plans to take corrective
actions.

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Douglas Dam Tailwater Campground

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Rebuilding the Foundation.

Summary of Representative Audits

Semiannual Report | Rebuilding the Foundation.

Summary of
Representative
Audits

Our four audit departments issued
66 reports to TVA management
during this semiannual period. The
newly established distributor audit
department completed four reviews
of TVA power distributors. The IT
Audits group assessed TVA’s general
computing controls, security monitoring
program and backup and recovery
controls. This group also performed a
pre-implementation review of controls
for a new asset management system.
This work was in addition to tests of
general computer and application
controls completed in support of TVA’s
efforts to comply with SOX. To further
assist TVA in SOX compliance, Financial
and Operational Audits completed
tests of financial reporting controls
for 27 business processes. Financial
and Operational Audits also applied
agreed-upon procedures this period
related to TVA’s 2008 green power
pricing accreditation. Contract Audits
succeeded in identifying $50.5 million
of potential savings opportunities,
primarily related to overstated cost
recovery rates and misclassified
labor categories, for TVA to negotiate.
Additionally, Contract Audits completed
seven compliance audits of contracts
with expenditures totaling $392 million
and identified potential overbillings of
$6.7 million. Following are additional
details for the engagements completed
this semiannual period by the four
departments.

had adequate information to estimate,
was not material; however, there were
some instances where we did not have
enough information to estimate the
impact. Generally, the distributors are
taking action to correct these issues.

Jill M. Matthews
Deputy Assistant
Inspector General,
Audits & Support

> Contract
Compliance

Distributor Audits

During this fiscal year, the OIG launched
a new contract compliance audit program related to the revenue contracts
between TVA and its power distributors. These reviews began in the Inspections group; however, in January
2009, the OIG established the Distributor Audits group to focus solely on these
reviews and related issues. The objective of these reviews is to assess compliance with the key power contract provisions including: (1) the proper reporting of power sales by customer class to
facilitate proper revenue recognition
and billing by TVA; (2) nondiscrimination in providing electricity to members
of the same rate class; and (3) the use of
power revenues.
During this semiannual period, the OIG
completed four reviews of TVA distributors. Two reports were issued under
Inspections and two were issued by the
newly formed Distributor Audits group.
Below are issues noted in one or more
of these reviews.

>C
lassification and
Metering

We noted some instances where:
(1) customers were not classified properly; (2) similar customers were not
classified the same; (3) meters were
not accurately measuring consumption; (4) customers were not metered
for demand; and (5) customers were
not metered, which resulted in estimates being used for billing purposes.
The impact of these issues, where we

We found distributors were not complying with certain contract requirements.
Specifically, we noted: (1) contracts
not in place with all customers whose
demand was greater than 50 kW;
(2) accounting practices not in compliance with Federal Energy Regulatory
Commission requirements; (3) comingling of electric department funds
with those of other city departments;
(4) adjustments to customer bills not
made as required in the contract; and
(5) proper documentation not kept to
verify compliance with the small manufacturing company credit. The distributors generally agreed to take actions to
address these issues with the exception
of the co-mingling of funds issue. TVA
also agreed no action was necessary. In
addition, TVA is reevaluating the threshold for requiring distributor’s to obtain
contracts with their customers.

> Use of Electric
Revenues

We noted the distributors had more
than enough cash on hand to fund
planned capital expenditures and provide a cash reserve. While TVA has
established guidelines to determine if a
distributor has adequate cash reserves
(cash ratio of 5 to 8 percent), TVA has
not established guidelines to determine
if a distributor’s cash reserves are excessive. Two of the four distributors
reviewed had cash ratios exceeding the
minimum guidelines of 5 to 8 percent.
TVA has agreed to define criteria for
determining when a distributor’s cash
reserves are excessive. We did not

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identify any issues relating to the use of
revenues for approved purposes in any
of the four reviews.

>O
pportunities
for TVA Oversight
Improvements

We found TVA: (1) did not include
cash used to prepay TVA power in the
calculation of the cash ratio for rate
review purposes; (2) had not provided
definitive guidance for distributors on
what constituted prudent expenditures;
(3) had not adequately defined how
often meters should be tested by the
distributors; (4) had not performed a
joint cost study in more than 20 years;
(5) had not defined at what point a
demand meter is required for certain
commercial rate class customers; and
(6) had not provided guidance on what
types of appurtenances were allowed
or at what point in time the use must
be predominately residential. TVA
agreed to take action on all identified
issues except for the issue related to
appurtenances.

Phyllis R. Bryan
Director, IT Audits &
Support

IT Audits
> Improvements
Needed in General
Computing Controls
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We reviewed general computer controls
related to a TVA control system. We
found security weaknesses existed in
each of the areas we reviewedâ&#x20AC;&#x201D;logical
security, physical and environmental
security, and general security controls.

We also noted TVA does not have a
process to evaluate audit findings to
determine if similar issues could exist
in other TVA systems. As a result, the
findings identified in this report are
similar to findings in previous OIG
reports for control system reviews.
TVA management agreed with our
findings and has taken or is in the
process of taking corrective action to
remediate issues noted in these audits.

> Improvements
Needed for Security
Monitoring Program

We evaluated the effectiveness of
agency-wide controls and processes in
place to monitor, identify, classify, and
respond to cyber security events. We
found TVA: (1) lacked a comprehensive
strategy; (2) was not adequately
monitoring its IT assets for cyber
security events; (3) did not always
follow its incident response policies and
procedures; and (4) was not effectively
using existing resources capable of
increasing IT security monitoring levels
and coverage.
During this audit, TVA began working toward an agency-level IT security
monitoring framework and initiated
several projects to improve monitoring,
identification, and classification of security events. TVA management agreed
with our findings and has taken or is in
the process of taking corrective action
to remediate the identified issues.

>P
re-implementation
Review Concluded
Controls Were
Adequate

We performed a pre-implementation
review of the initial phase of the
enterprise asset management system.
We determined plans and processes in
place were adequate after actions were
completed to address our concerns

Semiannual Report | Rebuilding the Foundation.

regarding application access controls,
system security, system testing, data
conversion, and general controls
included in our audit scope. TVA
management agreed with our findings
and has taken or is in the process of
taking corrective action to remediate
the identified issues.

> Backup and Recovery
Controls Determined
Effective
We assessed the controls in place for
the backup and recovery of control
system configurations for the River
Operations business unit. We found
River Operations has effective controls
and processes in place related to the
backup and recovery of control system
configurations.

> FY 2009 IT SOX
Testing Identified
Opportunities for
Improvement

During this semiannual period, we
completed (1) control testing for five
IT general control domains and eleven
applications, and (2) year-end, remediation and nonoccurrence testing for four
IT general controls and four application
controls. Overall, we noted opportunities to improve the operating effectiveness of controls and SOX documentation. TVA management agreed with
our findings and has taken or is in the
process of taking corrective action to
remediate issues noted in these audits.

During this semiannual period, we
completed testing of financial reporting controls for twenty-seven business
processes to assist with TVA’s initiative
to comply with SOX. In addition, we
performed agreed-upon procedures
related to TVA’s 2008 green power pricing accreditation. Highlights of these
projects follow.

We completed testing of 106 control
activities within 27 TVA key business
processes designated by TVA’s Financial
Compliance and Regulatory Controls
Group as requiring testing for SOX
compliance. We found that of the
106 controls tested, 83 were operating
effectively, ten were not operating
as intended, four lacked sufficient
documentation to demonstrate the
control operated effectively, five were
not designed effectively, and four
controls operated differently than
what was described in the process
documentation. In addition, OIG
identified 39 instances where process
documentation could be improved.

> TVA’s Compliance
with the Green
Pricing Accreditation
Program
TVA’s Green Power Switch Program
produces or acquires electric power
generated from renewable resources
such as solar, wind, and methane gas,
and adds such sources to TVA’s power
mix. Both solar and wind power are
produced in sufficient quantities to
qualify for accreditation by the Center
for Resource Solutions (CRS). We
completed agreed-upon procedures
to assist the CRS in determining TVA’s
compliance with the annual reporting
requirements of CRS’ Green Pricing
Accreditation Program, Green-e Energy
for utility pricing programs, for the
year ended December 31, 2008. These
procedures included steps to verify
that the renewable energy supply
was sufficient to meet sales, products
met the Green-e criteria and stated
product content, and marketing and
product information was accurate
and communicated to customers. The
results of the procedures verified that
TVA’s Green Power sales were based
on electricity generated or acquired
from eligible renewable sources and
otherwise met the above aspects.
CRS was provided with the results
of our work.

During this semiannual period, we also
completed seven compliance audits of
contracts with expenditures totaling
$392 million and identified potential
overbillings of $6.7 million. In addition,
we provided (1) assistance on various
contractor-related investigations, and
(2) advice to management regarding
various planned contracts. Highlights
of our completed compliance audits
follow.

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• We audited $23.2 million of costs
billed to TVA by a contractor for the
design, engineering, and delivery
of air preheater equipment for TVA
fossil plants. Our audit found TVA had
been overbilled at least $2,232,780 as
follows:

- The contract provided for all
work, with the exception of a
baseline project at Allen Fossil
Plant, to be performed on a cost
reimbursable basis. However,
we found the contractor had
overbilled TVA at least $2,025,739
on four additional fossil plant
projects that had been performed
because it had billed fixed
prices instead of using the cost
reimbursable terms required
by the contract. The actual
overbilling may be higher because
our calculation of the overbilling
used a maximum fee rate the
contractor would have been
eligible to receive.
- The contractor overbilled
$207,041 for field technician
services because incorrect billing
rates had been used.

Although the contractor agreed it had
overbilled TVA, it disagreed with the
amount that had been overbilled. TVA
management plans to recover the
overbilling and is working with the
contractor to determine the amount to
be repaid to TVA.

• We audited $57.4 million in payments
TVA had made to the contractor for
providing turbine generator outage
services at TVA nuclear plants and
found the contractor had overbilled or
not provided services to TVA totaling
an estimated $281,023, including:
(1) $171,150 for labor and per diem
costs that were either unsupported or
unallowable; (2) $6,729 for overbilled
fixed price labor; and (3) $103,144 for
engineering services that had not been
provided as required by the contract.
TVA management is reviewing the
audit findings in detail to determine
what actions to take.

Semiannual Report | Rebuilding the Foundation.

• We audited $9.98 million in costs
billed to TVA by a contractor for rightof-way clearing and land restoration
services for transmission line projects.
In summary, we found the contractor
overbilled TVA $34,678, including
(1) $28,925 in unallowable
rental costs, and (2) $5,753 due
to miscellaneous invoice errors.
Additionally, we could not determine
if price changes had been accurately
accounted for under the contract
because the contract’s provisions
related to price changes were unclear.
TVA management subsequently
decided to recover $6,380 of the
overbilled costs and revise the
contract price change provisions.

TVA transmission right-of-way

• We audited the cost billed to TVA by a
contractor for performing preheat and
post-weld heat treatment services and
found the contractor (1) had billed
certain tasks at fixed prices instead
of using the time and material billing
rates provided for by the contract, and
(2) overbilled or could not provide
support for $1,350 that had been
billed as time and material.
Although the contractor was
subsequently able to document that
the fixed prices billed to TVA did
not overstate its actual costs, we
recommended TVA management
ensure: (1) the contract explicitly
states how procurement agents will
determine whether to use time and
materials pricing or fixed prices for
task assignments, and (2) procurement

agents retain documentation of how
TVA assessed the reasonableness of
the price for any work performed
at the fixed price. Additionally, we
recommended TVA recover the $1,350
of overbilled/unsupported cost. TVA
management is planning to recover the
$1,350 overbilled and is reviewing our
recommendations regarding the use of
fixed-price tasks.

â&#x20AC;˘ We audited $3.5 million in costs
billed to TVA by a contractor for work
related to the restart of BFN Unit 1.
In summary, we found TVA had been
overbilled $1,075,020 including:
(1) $174,912 of unsupported and
ineligible labor and per diem costs;
(2) $621,428 of unsupported and
ineligible equipment costs;
(3) $199,180 of unsupported
material costs; and (4) $79,500 of
overstated task costs. Although the
contractor only agreed it could not
provide support for $224,836 of the
items questioned by the audit, TVA
management is planning to recover
the total overbilled amount identified
by the audit.
â&#x20AC;˘ We audited $25 million of costs
billed to TVA by a contractor for
providing research and development
activities and found: (1) TVA made
invoice payments in advance of
the work being performed, thus
losing an estimated $1,125,000 in
foregone interest over the period;
(2) project status reports submitted
by the contractor were incomplete
and inaccurate; and (3) TVA was
delinquent in recovering $84,371 in
overfunded project amounts.

(3) recover all unspent funds and
institute procedures for ensuring
the timely collections of all future
overpayments. TVA management is
reviewing our recommendations to
determine what actions to take.

â&#x20AC;˘ We audited the costs billed to
TVA by a contractor for providing
(1) modification and supplemental
maintenance services at TVA nuclear
plants (operating unit work), and
(2) construction services for the
restart of BFN U1. The scope of our
review included $272.2 million of
noncraft costs billed by the contractor
through December 31, 2007, including
(1) $89.6 million for modification and
supplemental maintenance services,
and (2) $182.6 million for the BFN U1
services.
In summary, we found TVA had
overpaid the contractor (1) from
$876,519 to $1,579,575 for BFN U1
performance fees due to an overstated
fee base and inflated fee rates;
(2) $268,538 due to ineligible and
unsupported billings for labor costs;
(3) $54,633 due to overbillings for
temporary living and relocation costs;
and (4) $6,650 due to miscellaneous
overbilled costs. TVA management is
reviewing our findings to determine
what amounts to recover from the
contractor.

We recommended TVA management
(1) discontinue the use of advanced
payments unless the contractor
is required to pay interest on the
advanced amounts; (2) require the
contractor to provide a final status
report for all projects worked; and

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Summary of Representative Investigations

Semiannual Report | Rebuilding the Foundation.

Summary of
Representative
Investigations
During the semiannual period, we
completed 223 investigations of
criminal and administrative matters.
These investigations covered a wide
range of topics including environmental
crimes, falsification of invoices,
computer security issues, and contract
fraud to name a few. Specifically, the
criminal investigations resulted in
three indictments with one involving
environmental crimes, one involving
theft of government property, and
another involving forged and falsified
invoices by a TVA manager. In addition,
three convictions were obtained during
this period. Two of the convictions
related to environmental crimes and
one involved theft of government
property by a TVA employee. Our
administrative investigations resulted
in savings to TVA, numerous process
improvements and corrective actions
taken by TVA management including
suspension and termination. In
addition, we continued our data
mining efforts to identify potential
areas for investigation. One Workers’
Compensation investigation identified
through data mining resulted in a
savings to TVA of almost $500,000.
These investigations demonstrated that
the OIG continues to have a positive
impact on TVA and the Valley.

ACTIONS IN
CRIMINAL
INVESTIGATIONS
– CONVICTIONS
>H
eraeus Metal
Processing, Inc.
Heraeus Corporation, a company
located in Wartburg, Tennessee,
reclaims silver and other precious
metals through the use of furnaces
in a high temperature reclamation
process. The resultant airborne
emissions are filtered through a process
which uses wet scrubbers. In our
last Semiannual Report we recounted
that Heraeus Corporation pled guilty
on January 21, 2009, to a one-count
Information, charging the company
with making false statements in and
omitting information from a document
required to be maintained pursuant
to the Clean Air Act. The Corporation
was fined $350,000 and sentenced
to 18 months of probation. On April
15, 2009, Brent Anderson, the plant
manager for Heraeus Metal Processing,
Inc., pled guilty to a one-count criminal
Information, charging him with making
false statements in and omitting
information from a document required
to be maintained pursuant to the Clean
Air Act. Anderson was sentenced to
one year probation and 50 hours of
community service. This case was
initiated by the Environmental Crimes
Joint Task Force, Eastern District of
Tennessee, based on allegations that
operating logs had been falsified.

A former Program Manager at the
Watts Bar Nuclear Plant was indicted
in Circuit Court in Tennessee on
one count of Forgery and one count
Passing Forged Instruments. Our
investigation determined that during a
move of personal household belongings
required by the manager’s TVA
employment, the manager submitted
a forged and falsified invoice to a
TVA contractor for property damage.
Specifically, the manager submitted
a $600 invoice claiming that a
construction company had repaired
the damage. A management review
of the invoice determined some of the
personal information on the invoice
belonged to another TVA employee.
The other employee had no knowledge
of the invoice nor did he consent to the
use of his name. During an interview
with the OIG, the manager admitted
falsifying and forging the invoice in
an attempt to collect $600. The OIG
issued a report to TVA Management
in May 2009. After receiving notice of
proposed termination, the manager
resigned his TVA employment.

OTHER
INVESTIGATIONS
> Data Mining
The TVA OIG continuously monitors
data related to workers’ compensation
recipients and payments since TVA
spends more than $68 million annually
in this area. Data reviews focus on
identifying enrollees who are
(1) receiving wages and salaries from
other sources, indicating their ability
to work; (2) currently incarcerated and
receiving payments; or (3) over the age
of 80 and may possibly be deceased
but still receiving payments. Recent
reviews resulted in the investigation
of five enrollees who were identified
as receiving significant annual
earnings while receiving workers’
compensation payments. Three
of these individuals received over
$70,000 each in wages from other
sources. Similar investigations in
the past resulted in enrollees being
permanently removed from the Office
of Workers’ Compensation Program
rolls, thus saving TVA hundreds of
thousands of dollars. Cases may also
be criminally prosecuted if fraudulent
documents are submitted in order
to obtain workers’ compensation
payments.

We completed an investigation of
a former TVA employee who was
receiving workers’ compensation
benefits. The former painter suffered
a back injury in 1984 and had been
receiving partial compensation
payments since that time. At the time
of the injury, he was making $501.60
a week. A painter currently working
for TVA makes $39,875 annually
($766.83 weekly). Our investigation
determined that the former painter
currently earns about $79,000 annually
as a financial officer at a regional
health corporation and has been in that
position since 2005. Although he had
properly reported his earnings to the
Department of Labor, he continued to
receive workers’ compensation benefits
from TVA of about $21,000 annually. We
determined that since he is vocationally
rehabilitated and his wage-earning
capacity is greater than the current
pay of the job he held when injured, he
is no longer eligible for compensation
benefit payments. At the OIG’s request,
the Department of Labor reviewed
the former painter’s earnings and
determined he is no longer eligible to
receive workers’ compensation benefits.
As a result, the projected savings to TVA
is $472,007, based on an estimated life
expectancy of 22 years.

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> Sinking of the Joe
Swank Tugboat
Investigated
An Empowerline caller reported on
the sinking of the Joe Swank tugboat
in TVA’s Muscle Shoals harbor. The
caller said a TVA supervisor was made
aware that the tug was listing; several
hours later, the supervisor instructed
laborers to pump the vessel out with
an electric pump that was allowed to
run overnight. By the following day,
the vessel had sunk, allegedly dumping
2,500 gallons of diesel fuel. The caller
claimed that the environmental event
should have been prevented. Our
investigation determined, however,
that only 25 gallons of diesel fuel
were discharged, and that the partial
sinking was the result of a number of
malfunctions in pumps despite the
best efforts of TVA personnel. The
Alabama Department of Environmental
Management and the United States
Coast Guard were pleased with TVA’s
response to the event.

>C
omputer Security
Issue with Safety
Implications
Addressed at BFN

>S
uspicious
Appearance of Items
from BFN on eBay
Investigated

At the request of plant management, we
investigated a computer security and
related safety issue at BFN. The facts
demonstrated that a foreman loggedin to a maintenance software program
using a second foreman’s computer
identification number and password
without his permission or knowledge
and “signed-off” on a security hold
(which prevents the flow of water into
wells) that had been placed by the
second foreman. BFN management
requested the OIG examine the matter
and noted that identification numbers
and passwords were readily available to
a number of users and in this instance
were used in such a way as to present
a potential safety hazard to others
working in the affected area. Plant
management also expressed concern
over disparate explanations of the
events leading to the discovery of the
problem. The OIG investigated the
allegation and published a detailed
report to BFN management which
included the history of identification
number and password use in the
affected area. The report was also
made available to the NRC. Plant
management responded positively to
the recommendations in the report.

We conducted an investigation based
on a report that TVA nuclear colleagues
who were searching for obsolete parts
on eBay located several items which
appeared to have come from TVA.
Stickers on one item identified it as a
part purchased for BFN Unit 1. Another
item had a sticker which identified it
as a TVA part. The seller was L&W
Surplus, L.L.C., Decatur, Alabama,
a corporation which buys and sells
industrial surplus equipment, materials,
and supplies. L&W Surplus has a
contractual relationship with TVA and,
since 2007, has purchased more than
$200,000 in surplus equipment from
TVA sites, including Hartsville, Browns
Ferry, Bellefonte, and Widows Creek.
The OIG investigation determined that
items sold at the plant level and on eBay
had not been adequately inventoried
or itemized prior to sale. A Report of
Administrative Inquiry was published
to BFN, and management responded
positively to the recommended
remedial actions.

> energy right®
Program

The OIG received a report that an
employee of TN Electric Utility had
defrauded TVA’s energy right® Program
(ERP). TVA ERP provides funding to
local utilities to distribute to customers
who convert from gas water heaters
to electric water heaters, etc. The
employee served as an approving
official for the distribution of ERP funds.
The complaint alleged in pertinent
part that the employee completed ERP
forms and subsequently obtained funds
which were then distributed to friends
and family members though they did
not upgrade or replace their water
heaters. The investigation also revealed
information bearing on non-TVA related
fraud committed by the employee
against the city including using city
funds to purchase gift cards that were
supposed to be used in charity auctions
but were instead used for personal gain.
Criminal prosecution was declined due
to the comparatively low dollar loss.
However, the city official was forced
to resign, and the city garnished the
wages of this employee. A report to
TVA management was provided and a
recommendation approved.

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> Inaccurate
Reporting in Freeze
Protection Program
Investigated at BFN
At the request of plant management,
we investigated issues identified as
problematic in the Freeze Protection
Program at BFN. As documented in
a Problem Evaluation Report, two
heaters identified in the Condensate
Pipe Tunnel, previously identified as
missing in 2003 were documented
by TVA technicians as being in place
during BFN’s winter readiness “walkdowns” from 2001 to 2008. These
heaters are “non-nuclear.” They are
not direct pieces of nuclear operation
equipment, but are used as preventive
care equipment for the prevention of
frost and cold damage to other capital
assets within the tunnel (pipes, etc). An
NRC report in 2008 noted two missing
heaters. The OIG investigated the
inaccurate reporting and documented
the history and likely causal factors
in a Report of Administrative Inquiry
published to BFN management. Plant
managers responded positively to the
recommendations made in the report.

> Sha
wnee Noose Case
(1 of 2)

> Shawnee Noose Case
(2 of 2)

On February 15, 2009, a Fossil Field
Services Supervisor took photographs
of scaffolding constructed at the Unit
1 H.P. turbine at the Shawnee Fossil
Plant during an outage. When the
supervisor reviewed the photographs
later on his computer he noticed a
noose tied to the back of the scaffolding.
The rope was cut down and TVA Police
was notified. Several TVA contractors
and employees were interviewed and
denied knowledge concerning who
tied and placed the hangman’s noose.
Three individuals were identified who
might be capable of tying a hangman’s
noose and who had allegedly made
racist comments in the past. However,
there were no witnesses to the event
and no evidence to clearly connect any
individual to the tying of the noose.

During the investigation of a separate
noose-related complaint (outlined
previously) another unrelated
noose incident was uncovered. An
investigation determined that a
Shawnee Unit Operator had tied a
hangman’s noose during his shift in
the control room sometime during
February 2008 (exact date unknown).
A co-worker informed the Operator
that he could get fired for making
a hangman’s noose. The Operator
immediately apologized and untied
the noose. An African American Unit
Operator witnessed the incident.
The matter was referred to the United
States Department of Justice, Civil
Rights Division after consultation
with the local United States Attorney’s
Office. On September 21, 2009, the
U.S. Attorney’s office, based on the
advice of the Department of Justice,
declined criminal prosecution.

Recommendations were provided
to fossil management concerning
sensitivity awareness training
in smaller group settings. The
recommended training included
procedures to follow in the event a
hangman’s noose is discovered in the
future. Fossil management responded
to the OIG recommendations by
implementing smaller setting sensitivity
awareness training for all Shawnee
employees, contractors, and all
Power Service Shop employees.

TVA Management informed us that
it appeared a Kingston Fossil Plant
Administrative employee was changing
her husband’s leave in the payroll
system to paid time. Each time he
entered leave into the system and after
it was subsequently approved by his
supervisor, she entered the system
and changed the leave to straight time,
allowing her husband to be paid as if he
were at work, when he was actually on
leave. Our investigation verified that
the Kingston Fossil Plant Administrative
employee cancelled her husband’s
leave on two instances. However, the
Kingston Fossil Plant Administrative
employee had announced her
retirement from TVA and retired prior
to the completion of our investigation.
The husband’s leave was corrected.

A TVA contractor at the Watts Bar
Nuclear Plant received temporary
living allowances totaling more than
$17,000 by submitting two different
“permanent addresses” to TVA for
that purpose. The contractor had a
temporary address in Chattanooga,
Tennessee, and a permanent address
in Alabama. He also owned a home
in Atlanta. The contractor submitted
two different permanent addresses to
TVA in order to qualify for a temporary
living allowance. Neither address was
his permanent address. The contract
employee died prior to being indicted.

> Computer Misuse
Investigation Results
in 30-day Suspension
An investigation was predicated on a
TVA Enterprise IT Security Division
referral alleging that a unit operator at
a TVA fossil plant had been accessing
pornographic Web sites during his
assigned shift. Proxy logs obtained by
TVA Enterprise IT Security contained
references tending to substantiate the
allegation. A more thorough forensic
computer investigation followed leading
to an interview of the subject, during
which he confessed to downloading
extremely graphic pornography from
the Internet onto TVA computers for
the past five years.
OIG issued a report to management
detailing the findings of the
investigation both from a personnel
and technical standpoint. TVA
management suspended the employee
for 30 days. TVA IS assessed the
findings and is in the process of
implementing Valley-wide processes
to better address such misuse.

> TVA Manager with Procurement Authority Found Self-Dealing
An investigation followed confidential
reporting alleging that a TVA manager
used his management position at TVA to
procure wheat straw from a side business for personal financial gain. The
manager had procurement authority for
anything related to fossil outage work
which included the purchase of wheat
straw. Although the individual became
a manager in 2003, he was not required
by TVA’s General Counsel’s office to
provide a financial disclosure until
2007. The manager did not provide
the required financial disclosure form

due in 2007 or 2008, despite repeated
notifications. In 2008, the manager was
instructed to disclose his finances for
January 1 through December 31, 2007.
Our investigation determined that the
former manager is part owner of a
wheat straw business, along with another TVA employee, which sells straw
to several customers including a TVA
vendor. The TVA fossil plant purchased
more than $38,000 in straw from
the vendor from 2002 through 2008.
Wheat straw is ordered by the fossil

plant personnel after purchase requests
are submitted by plant staff.
The manager was listed as the approval
authority on nine occasions from 2004
through 2007 for Widows Creek Fossil
Plant wheat straw purchase requests
that were ultimately purchased from
the pertinent vendor.
Based on investigative findings, the OIG
formally recommended a number of
remedial actions designed to identify
and scrutinize both employees and
contracts at risk for self-dealing.

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Rebuilding the Foundation.

Legislation and Regulations

Semiannual Report | Rebuilding the Foundation.

Legislation and Regulations
In fulfilling its responsibilities under the IG Act of 1978, as
amended, the OIG follows and reviews existing and proposed
legislation and regulations that relate to the mandate,
operations and programs of TVA. Although TVAâ&#x20AC;&#x2122;s Office of
the General Counsel reviews proposed or enacted legislation
that could affect TVA activities, the OIG independently follows
and reviews proposed legislation that affects the OIG and/or
relates to economy and efficiency or waste, fraud, and abuse
of TVA programs or operations.
Major pieces of legislation being followed by the TVA OIG
during the past six months include:

> H.R. 2454 â&#x20AC;&#x201C; American Clean Energy and Security Act of 2009
This comprehensive piece of legislation
significantly impacts large producers
of electric power, including TVA. The
legislation covers many items, a few of
which are as follows. The bill amends
the Public Utility Regulatory Policies
Act to establish a combined national
renewable energy and energy efficiency
resource standard, mandating those
suppliers of electricity marketing
more than 4 million megawatt-hours
annually to obtain 20 percent of their
supply from renewable energy credits
and demonstrated energy efficiency
savings by 2021 (starting at 6 percent
in 2012 and increasing the annual
renewable combined renewable target
until it reaches 20 percent by 2021). No
more than one-quarter of this amount
may be met by efficiency savings. The

bill sets new set new energy-efficiency
standards for lighting products,
commercial furnaces, and appliances.
The bill also requires federal agencies to
get 20 percent of their electricity from
renewable sources by 2020 and allows
the federal government to enter into
long-term power purchase agreements
for renewable energy. The bill also
contains provisions directed toward the
control of greenhouse gas emissions.
For example, new coal-fired power
plants must reduce their emissions by
at least 65 percent if they receive air
permits after 2020. Plants permitted
between 2009 and 2015 have to cut
emissions by at least 50 percent within
four years after a threshold amount of
carbon capture and storage equipped
capacity is operating. Coal plants, which

are the source of the overwhelming
proportion of greenhouse gas from
electric power producers, would have
to capture 65 percent of their carbon
emissions for plants built after 2020.
The bill also encourages deployment of
a smart grid to increase grid efficiency
and to reduce utility peak loads. It
directs the establishment of a federal
policy on electric grid planning,
including facilitating transmission to
carry renewably-generated electricity,
and it provides for the Federal Energy
Regulatory Commission to have
jurisdiction of interstate transmission
projects in the Western Interconnection.
The bill also establishes a cap-and-trade
program to limit total emissions of
carbon dioxide and other heat-trapping
pollutants from major sources.

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> S. 1462 – American Clean Energy and Leadership Act of 2009
Similar to the legislation in the other
chamber, this is a comprehensive
energy bill. The legislation covers
many items a few of which are pointed
out herein. This bill also establishes
a combined national renewable
energy and energy efficiency resource
standard, requiring those suppliers
of electricity marketing more than 4
million megawatt-hours annually to
obtain 15 percent of their supply from
renewable energy credits or energy
efficiency credits by 2021 (starting at
3 percent in 2011 and increasing the
annual renewable combined renewable
target until it reaches 15 percent by

2021). No more than 26.67 percent of
this amount can be met with energy
efficiency, making the renewable energy
mandate effectively about 10 percent by
2021. However, unlike the House bill,
the Senate bill contains no provisions
for the control of greenhouse gas, i.e.,
cap and trade. The Senate bill affirms
that the use of nuclear energy should
be expanded and creates a National
Commission on Nuclear Waste to
carry out six studies related to the
management and disposal of nuclear
waste for both civilian and defense
activities. A number of other studies
are also called for by this bill including

one on the efficiencies and the annual
CO₂ and other emissions output from
electric generation facilities. The bill
also provides for the Federal Energy
Regulatory Commission to have
jurisdiction over high-priority electric
transmission facilities when states
have been unable to resolve the matter
and the bill also contains a number of
provisions in regard to improving the
electricity transmission grid.

> H.R. 1507 – Whistleblower Protection Enhancement Act of 2009
This bill amends federal personnel law
relating to whistleblower protections
for federal employees by expanding
the concept of protected disclosure
to include lawful disclosures without
restriction to time, place, form, motive,
context, forum, or prior disclosures,
including a disclosure in the ordinary
course of an employee’s duties. It
also expands the protections to cover
contractor employees. Significantly,
if a federal employee or contractor
employee experiences retaliation
and the administrative process fails
to provide relief within 180 days the
bill would allow the employee to file a
case with a federal district court and

have the matter decided by a jury. As
to cases decided by the Merit Systems
Protection Board, the whistleblower
can file an appeal within 90 days. The
bill provides for a choice of appellate
forums other than the Federal
Circuit Court of Appeals. Prevailing
whistleblowers can be awarded back
pay and compensatory damages.

The bill defines evidentiary standards
applicable to whistleblower disclosures.
The bill requires an agency IG to either
make a determination that a complaint
alleging reprisal is either frivolous or
submit a report within 180 days after
receiving the complaint. The person
alleging the reprisal shall have access

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to the complete investigation file of
the IG in accordance with the Privacy
Act. And the investigation of the IG
shall be deemed closed for purposes
of disclosure when an employee files
an appeal to an agency head or a court
of competent jurisdiction. IG’s would
also be required to issue annual reports
of their agencies’ compliance with the
enacted statute.

> S. 372 – Whistleblower Protection Act of 2009
This proposed legislation also expands
the definition as to what constitutes a
“protected disclosure,” and unlike the
House bill it creates a Whistleblower
Ombudsman in every IG office to
advocate for federal whistleblowers.
The bill is also different from the
proposal in the House in a number of
significant aspects. It exempts from
protected disclosures violations of law
which are minor or inadvertent, negates
a claim of reprisal when a supervisor
shows that the personnel action in
question would have been taken in
the absence of any protected activity,

lowers the agencies burden of proof
from “clear and convincing evidence”
to the “preponderance of the evidence”
caps compensatory damages, and
creates a sixty-day statute of limitations
for filing claim of retaliation. It also
provides a different methodology
of protection to those employed by
national security agencies through
the establishment of an adjudicatory
system within the defendant agency.
The proposed legislation provides the
Merit System Protection Board with a
summary judgment procedure (with
a five-year sunset provision to test its

workability), and includes a provision
whereby a federal employee may ask
the MSPB to certify their case for federal
court prior to the full MSPB hearing.
The review before the court is not de
novo and MSPB’s denial of certification
is examined by the appellate court using
the standard of “arbitrary, capricious
or an abuse of discretion.” It limits jury
trials, and contains a five-year sunset
provision for that provision granting
employees the right of appeal to the
federal circuit court of appeals where
they reside.

> H.R. 493 – Coal Ash Reclamation, Environment, and Safety Act of 2009
This bill orders the Secretary of the
Interior to prescribe federal design,
engineering, and performance standards
on new coal ash impoundments; and
orders an inventory of existing coal
ash impoundments and the risks each

poses to groundwater, human health,
and the environment. It also requires
monitoring and inspection regimes
for both existing and future coal ash
impoundments.

>S
. 942 – The Government Charge Abuse Card Abuse Prevention
Act of 2009
This proposed legislation requires
agency IG to conduct periodic
assessments of their agencies’ purchase
card or convenience check programs
and to report their findings and recommendations to agency heads and the
Office of Management and Budget.

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Appendices

Semiannual Report | Rebuilding the Foundation.

Appendix 1
Index On Reporting Requirements Under The IG Act
REPORTING

REQUIREMENT

PAGE

Section 4(a)(2)

Review of Legislation and Regulations

42-45

Section 5(a)(1)

Significant Problems, Abuses, and Deficiencies

24-41

Section 5(a)(2)

Recommendations With Respect to Significant Problems, Abuses,
and Deficiencies

24-41

Section 5(a)(3)

Recommendations Described in Previous Semiannual Reports in
Which Corrective Action Has Not Been Completed

Appendix 4

Section 5(a)(4)

Matters Referred to Prosecutive Authorities and the Prosecutions
and Convictions That Have Resulted

A. For which no management decision has been made
by the commencement of the period

Number of
Reports

Questioned
Costs

0

Unsupported
Costs

$0

$0

B. Which were issued during the reporting period

7

$6,743,618

$2,971,853

Subtotal (A+B)

71

$6,743,618

$2,971,853

C. F or which a management decision was made during the
reporting period

52

$2,833,678

$2,315,795

1. Dollar value of disallowed costs

5

$2,798,657

$2,312,148

2. Dollar value of costs not disallowed

2

$35,021

$3,647

D. For which no management decision has been made
by the end of the reporting period

4

$3,909,940

$656,058

E. F or which no management decision was made within
six months of issuance

0

$0

$0

TABLE I: TOTAL QUESTIONED AND UNSUPPORTED COSTS
INSPECTIONS
Number of
Reports

Questioned
Costs

Unsupported
Costs

A. For which no management decision has been made
by the commencement of the period

0

$0

$0

B. Which were issued during the reporting period

0

0

0

Subtotal (A+B)

0

0

0

C. F or which a management decision was made during the
reporting period

0

0

0

1. Dollar value of disallowed costs

0

0

0

2. Dollar value of costs not disallowed

0

0

0

D. F or which no management decision has been made
by the end of the reporting period

0

0

0

E. F or which no management decision was made within
six months of issuance

0

0

0

Audit Reports

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1

he subtotal of reports (A+B) differs from the sum of C and D when the same report(s) contain recommendations for which a management decision was made
T
and others for which a management decision was not made by the end of the semiannual period.

2

he total number of reports for which a management decision was made during the reporting period differs from the sum of C(1) and C(2) when the same
T
report(s) contain both recommendations agreed to by management and others not agreed to by management.

Semiannual Report | Rebuilding the Foundation.

TABLE II: FUNDS TO BE PUT TO BETTER USE
AUDITS
Audit Reports

Number of Reports

A. F or which no management decision has been made
by the commencement of the period

0

B. Which were issued during the reporting period

8

Subtotal (A+B)

8

C. F or which a management decision was made during the
reporting period

44

Funds to be Put to Better Use

$0
$50,570,129
$50,570,129

3

$10,682,129

1. Dollar value of recommendations agreed to by management

3

$6,593,129

2. Dollar value of recommendations not agreed to by management

3

$5,959,150

D. For which no management decision has been made
by the end of the reporting period

5

$39,888,000

E. For which no management decision was made within
six months of issuance

0

$0

TABLE II: FUNDS TO BE PUT TO BETTER USE
INSPECTIONS
Audit Reports

Number of Reports

Funds to be Put to Better Use

A. F or which no management decision has been made by the
commencement of the period

0

$0

B. Which were issued during the reporting period

0

0

Subtotal (A+B)

0

0

C. F or which a management decision was made during the
reporting period

0

0

1. Dollar value of recommendations agreed to by management

0

0

2. D
ollar value of recommendations not agreed to by
management

0

0

D. F or which no management decision has been made by the
end of the reporting period

0

0

E. F or which no management decision was made within six
months of issuance

0

0

The subtotal of reports (A+B) differs from the sum of C and D when the same report(s) contain recommendations for which a management decision was made
and others for which a management decision was not made by the end of the semiannual period.

3

The total number of reports for which a management decision was made during the reporting period differs from the sum of C(1) and C(2) when the same
report(s) contain both recommendations agreed to by management and others not agreed to by management.

4

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Appendix 4
AUDIT AND INSPECTION REPORTS WITH CORRECTIVE ACTIONS PENDING
As of the end of the semiannual period, final corrective actions associated with six audits and five inspections were not completed within one
year of the final report date. Presented below for each audit and inspection are the report number and date and a brief description of the
open recommendation(s) and the date management expects to complete final action, if available.
Audit Report
Number and Date

2007-11348-01
03/26/2008

Report Title and Recommendation(s) for Which Final Action is Not Complete

IT Security Organizational Effectiveness
TVA management agreed with our recommendations and has completed actions on three of the six recommendations. TVA
is in the process of implementing program and organizational improvements. Action plans are scheduled for completion
by March 30, 2010.

2007-11216
06/02/2008

Actions to Protect Social Security Numbers and Eliminate Unnecessary Use
TVA management has completed final action for one recommendation. According to Information Services, it is on track to
meet the action deadlines for the remaining two recommendations (June 2010).

2008-11754
06/13/2008

Computer Operations-Manage Facilities – SOX 404 Testing
Management has completed actions to address three of the five recommendations. Corrective action for the remaining two
recommendations is on track for completion in September 2010.

2007-11388
08/21/2008

Sequoyah Nuclear Plant – Cyber Security Assessment
TVA management from Nuclear Power Group and Information Services provided corrective action plans to address the
recommendations and indicated all corrective actions would be completed by October 2010.

2008-11809
08/21/2008

Manage Site Material and Record Inventory Movement – SOX 404 Testing
According to TVA management, as of September 30, 2009, TVA had implemented additional inventory controls to address
the two outstanding findings and recommendations. TVA is preparing related documentation and testing the associated
controls. Final action is expected to be completed by October 15, 2009.

2008-11964
09/25/2008

Federal Information Security Management Act Evaluation
Management agreed with our findings and recommendations and plans to complete final action by November 30, 2009.

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Inspection Report
Number and Date

2005-518I
08/31/2005

Report Title and Recommendation(s) for Which Final Action is Not Complete

Physical and Environmental Controls for the Chattanooga Data Center
Information Services has developed a Unified Communications Strategy and Project Plan that includes replacing the
telephone system by the end of 2012.

2005-522I
06/13/2006

TVAâ&#x20AC;&#x2122;s Role as a Regulator
The original findings of the OIG report have been addressed, but full implementation will take time. Recommendations
for all of the OIG findings from the report have been developed. The TVA Regulatory Work Group comprised of officers of
the company has been established to implement the recommendations. The TVA Board is keenly interested in this topic
and has requested additional information on TVA regulatory authority and scope which has been provided. The OIG has
provided recommendations on these issues. Recommendations on TVA's role as regulator were provided to the Audit,
Governance, and Ethics Committee of the Board in August 2009. TVA will be presenting recommendations to the TVA
Board in November 2009. An estimated completion date for final action will be established once the Board has reviewed
TVA management recommendations and provided guidance.

2007-11428-08
08/07/2008

Normandy Cedar Point Public Use Area lease Agreement
Environmental Stewardship Relations has sent the lessee a letter outlining areas of compliance that must be addressed. If
documentation is not submitted for corrective action, required investment and performance bond, Environmental Stewardship Relations will proceed with terminating the lease and take possession of the TVA properties.

2008-11874
09/12/2008

Contractorâ&#x20AC;&#x2122;s Accounting for the Watts Bar Nuclear Plant Unit 2 Construction Project
The remaining enhancements require programmer development and have not been completed as originally forecasted. The
programmer that originally developed the billing program has been contacted and has submitted a proposal to improve the
billing process and control points. A request was recently approved by TVA to fund the program enhancement activities
identified in the programmer's proposal. The improvements are scheduled to be completed by November 30, 2009.

2007-11443
09/30/2008

Contractor Background Checks Applicable to the Watts Bar Nuclear Plant Unit 2 Construction Project
Nuclear Power Group and Human Resources are currently working to determine what changes are necessary to the
background checks for Watts Bar Nuclear Plant Unit 2 contractor employees and if any changes are required to TVA
Business Practice 29.

Appendix 5
INVESTIGATIVE REFERRALS AND PROSECUTIVE RESULTS1
Referrals

Subjects Referred to U.S. Attorneys
Subjects Referred to State/Local Authorities

45
6

Results

Subject Indicted

3

Subjects Convicted

3

Referrals Declined

34

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These numbers include task force activities and joint investigations with other agencies.

Referred to U.S. Attorneys
Referred to State/Local Authorities2
Indicted
Convicted

223

91

$20.6
472.1
.4
6

10

45

3

6

3

$10,725.3
0
352.7

3

1

18

4

--

3

135

$632.6
0
1.6

15
6
7
-14
3

121

174

$25,262

206

4,137

9

16

19

4

--

3

121

140

$27

1

575

8

3
5

--

2

6

These numbers include task force activities and joint investigations with other
agencies.

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Semiannual Report | Rebuilding the Foundation.
2

Category added in semiannual period ended September 30, 2009.

GLOSSARY ABBREVIATIONS AND ACRONYMS
Disallowed Cost – A questioned cost
that management, in a management
decision, has sustained or agreed
should not be charged to the agency.

Final Action – The completion of all
management actions, as described in a
management decision, with respect to
audit findings and recommendations.
When management concludes no action
is necessary, final action occurs when a
management decision is made.
Funds Put To Better Use – Funds,
which the OIG has disclosed in an
audit report, that could be used
more efficiently by reducing outlays,
deobligating program or operational
funds, avoiding unnecessary
expenditures, or taking other
efficiency measures.

Management Decision – The
evaluation by management of the
audit findings and recommendations
and the issuance of a final decision by
management concerning its response
to such findings and recommendations.
Questioned Cost – A cost the IG
questions because (1) of an alleged
violation of a law, regulation, contract,
cooperative agreement, or other
document governing the expenditure
of funds; (2) such cost is not supported
by adequate documentation; or (3) the
expenditure of funds for the intended
purposes was unnecessary
or unreasonable.

• 99.999 percent reliability for nine years in a row
• 80,000 square-mile service area
• 15,856 miles of transmission line

>

Customers

• 158 power distributors
(municipalities and cooperatives)
• 62 directly served customers
• 11 power exchange arrangements
• 9 million people served

>

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• Nation’s fifth-largest river system
• 293,000 acres of public land
• 800 miles of commercially navigable water
transporting more than 50 million tons of cargo
• 49 dams and reservoirs

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The OIG is an independent organization charged with conducting
audits, inspections, and investigations relating to TVA programs
and operations, while keeping the TVA Board and Congress fully
and currently informed about problems and deficiencies relating
to the administration of such programs and operations.

The OIG focuses on (1) making TVA’s programs and operations
more effective and efficient; (2) preventing, identifying, and
eliminating waste, fraud, and abuse and violations of laws, rules,
or regulations; and (3) promoting integrity in financial reporting.

If you would like to report to the OIG any concerns about fraud,
waste, or abuse involving TVA programs or violations of TVA’s
Code of Conduct, you should contact the OIG Empowerline
system. The Empowerline is administered by a third-party
contractor and can be reached 24 hours a day, seven days a week,
either by a toll-free phone call (1-877-866-7840) or over the
Web www.oigempowerline.com. You may report your concerns
anonymously or you may request confidentiality.
Report Concerns to the OIG Empowerline.